Dear Friends and Colleagues:
Happy New Year! We hope 2018 was a good year for you. We are writing to update you about changes in tax law and additional estate planning news for 2019.
Update on Gift and Estate Tax Laws in 2019
There were significant changes to the federal gift and estate tax laws in the beginning of 2018 after the Tax Cuts and Jobs Act of 2017 was passed. In 2019, the gift, estate, and generation-skipping transfer (GST) tax laws remain largely unchanged.
Federal – The Federal estate and gift tax exemption increased (for inflation only) to $11.4 million per individual (or $22.8 million for married couples). The Federal gift and estate tax rates remain 40%. The Federal gift tax annual exclusion remains $15,000 per donee for individuals (or $30,000 per donee for married couples).
Portability of the federal exemption remains in effect so that a surviving spouse can use his or her predeceased spouse’s unused federal exemption. To do so, a portability election must be made on a federal estate tax return filed after the first spouse’s death. For some clients, portability of the federal exemption may offer a planning opportunity to reduce estate and income taxes.
The federal exemption is slated to return to $5 million (adjusted for inflation) at the end of 2025 when the 2017 tax cuts expire.
Massachusetts – There are no changes to the Massachusetts estate tax. The Massachusetts estate tax rate is graduated with a top tax rate of 16%. The Massachusetts exemption is $1 million per individual. Unlike federal law, Massachusetts has not adopted portability and does not impose a gift tax.
Estate Planning Myths… Busted!
Myth #1 – “I no longer need an estate plan with estate tax planning.”
The increased federal estate tax exemption has led some to conclude (incorrectly) that they no longer need an estate plan with estate tax planning. We strongly disagree. The most important reason we disagree is that Massachusetts still imposes a state estate tax. Massachusetts estate tax is imposed on the entire estate if the total estate (plus lifetime gifts) exceeds $1 million. We do not expect Massachusetts estate tax law to change in the near future. Thus, many Massachusetts residents need to plan for Massachusetts estate taxes. Even those with less than $1 million ought to have in place a high quality estate plan to ensure that all family members are provided for properly.
Myth #2 – “Gifting will not save estate taxes.”
Lifetime gifting of assets to children and grandchildren remains an important strategy to minimize federal and Massachusetts estate taxes. By making lifetime gifts, many of our clients – even those without federally taxable estates – have saved their families Massachusetts estate taxes. Because Massachusetts does not have a state gift tax, annual exclusion gifts and lifetime gifts in excess of $1 million fully escape Massachusetts estate taxes. In addition, taxable gifts of less than $1 million may reduce Massachusetts estate taxes.
Myth #3 – “Trusts are only for the ultra wealthy.”
A trust is a legal structure in which a Trustee manages and controls assets for beneficiaries. Trusts can be flexible and serve various purposes. They are not only for the ultra wealthy. Trusts can protect assets from creditors, predators, and beneficiary mismanagement. In addition, leaving assets to your family members in a trust (rather than outright) can save estate taxes for future generations, simplify the disposition of your assets, and ensure that your assets pass to future generations as you wish. A trust is often the best way to leave assets to minor children, disabled adults, second spouses, adult children who may divorce, adult children with unique needs or lifestyles, and spendthrifts, as well as other beneficiaries.
Myth #4 – “I have POD or TOD designations on my accounts so I do not need an estate plan.”
POD (Pay on Death) or TOD (Transfer on Death) account designations are not a substitute for an estate plan. While POD and TOD accounts pass outside of probate and are easy to establish, they also have many disadvantages and limitations. They may even undo a good estate plan resulting in assets passing to the wrong beneficiaries in the wrong proportions.
It is typically better to title assets in the name of a Revocable Trust. Assets held in a Revocable Trust can be managed by others during a period of incapacity. Assets in a Revocable Trust are also available to fund a credit shelter trust for a surviving spouse. Finally, a Revocable Trust can ensure that assets are held properly for beneficiaries with special or unique needs.
Kaiser Law Group News
We have been very busy this year! In addition to our client work, we have been busy in the estate planning community.
- Davina, our newest attorney who joined us in 2017, is now fully integrated into our practice and significantly involved in most estate planning and administration matters.
- Dale and Rachel offered a three part program to the Massachusetts Association of Accountants in November on “Estate Tax Planning in Massachusetts – 2018 and Beyond”.
- Dale spoke at a live webinar event on “Estate Planning in an Online World” as part of Interactive Legal’s roundtable series.
- Dale will finish her three year term on the Board of Directors of the Boston Estate Planning Council in 2019.
- Rachel finished her two year term as coordinator of lunchtime educational events for the Trusts and Estates Consortium.
- Rachel and Davina are members of the Boston Estate Planning Council’s committee to plan this year’s annual gala event.
- Dale and Rachel will attend the 2019 Heckerling Institute on Estate Planning in January.
We wish you a happy and healthy 2019!
All our best,
Dale Ann Kaiser Rachel Ziegler Davina Lewis